How Do Patents Create Value?

How Do Patents Create Value?

Patents protect ideas and ensure that profits end with the inventor and rightful owner. Right? As patent attorneys we know that this is a very simplified view on patents; we experience first hand how start-ups and established companies use patents in a variety of ways to benefit their projects. If you would like a brief introduction to some of the many ways in which patents create value, please read on.

By Larsen & Birkeholm

Each year, French car maker Peugeot files +1000 patents. Pierre Gendraud, the general manager of Licensing and Intellectual Property at PSA Peugeot Citröen and expert in IP at the Paris Court of Appeal, has pointed out 11 identifiable reasons for why companies patent. Patents can give a competitiveedgeand monopoly for a period of time - but this only accounts for one of many reasons. His list stretches from ‘employee recognition’ and ‘creativity stimulation’ to a number of more hands-on reasons. A few of which we would like to highlight:

Gendraud points out that “there is a significant marketing and PR return to being recognised by third parties as a highly innovative organisation”. From big corporations to innovative start-ups, delivering “patent proof” of your innovative nature is a powerful way to promote yourself authentically as an innovative company to potential customers as well as the public at large.

Patents and utility models can be the firm basis of a contract, instead of defining an area of cooperation from scratch.

In extension, it should be mentioned how patents can be used as a measure to attract investors’ attention. In particular for start-ups and young companies, a patent is a way of documenting that value exists in the company: The value of the intellectual property right. For an investor or a potential partner, a patent is a clearly defined starting point for collaboration.

Patents and utility models can be the firm basis of a contract, instead of defining an area of cooperation from scratch. The company Cembrane (click here to visit their website), who filed their patent with Larsen & Birkeholm, is a classic story of how a patent became a pathway to funding and growth. Learn more about this story in a soon to be published feature on the company here on the site.

Patents also create value in a line of defense. When a patent is infringed, the most common strategy is actually not to seek to ban the competition. A law suit can be expensive and counterproductive. Rather, a patent is used as a dealmaker, ensuring royalties or compensation from the competitor. In very competitives markets, e.g. the United States, patents can be a shield from being overrun from aggressive competitors.

Rather, a patent is used as a dealmaker, ensuring royalties or compensation from the competitor

One of the reasons for this, is that patents and utility models precisely describe the development of a product from the time the patent is filed. In markets of intense competition, where there is an increased tendency to establish partnerships when developing a technology, companies may be faced with a need to prove the contribution made from each of the parties to the partnership. Applications for patents or utility models provide a timeline for when and how a company developed their technology, reducing the risk of expensive legal procedures.

We hope you enjoyed this brief introduction to patent value creation. We have summarized the main points in a small visualization.

How Do Patent Create Value?

Investments

Companies in need funding use patents or utility models as an asset proving value to the company. First, the intellectual property right constitutes a value by itself. Secondly, a patent or a utility model constitutes a detailed description of a product, an application or a process. For an investor or a partner it is much simpler to use a patent or utility model as the basis for a contract instead of defining an area of cooperation from scratch.

Royalties and compensation

An owner of a patent can prevent others from selling and marketing products using the technology of which they own the right due to the patent. However, an agreement is often made before judicial acts are initiated. The agreement can entail a license agreement (royalties) or a compensation.

Promotion

Ownership of a patent or a utility model gives credibility to a technology and supports innovation. Therefore, patents are often used to promote products to customers, investors or the public at large. Supporting development and innovation with patents or utility models helps conveying an understanding of competence and originality in respect of the technology.

Documentation

In markets of intense competition and an increased tendency to establish partnerships in developing a technology, companies may be faced with a need to prove the contribution made from each of the parties to the partnership. Applications for patents or utility models may provide a timeline for when and how a company developed their contribution to the technology, reducing the risk of expensive legal procedures.